Corporations—Restrictions on Alienation of Stock—When Valid

The validity of a charter provision giving the directors of a corporation the unrestricted power to purchase, retire, or cancel common stock at will was challenged by a newly retired employee whose stock had been called by the company. Held: the provision was not invalid per se and would support a call of common shares if not exercised arbitrarily. Plaintiff’s refusal to comply with the corporate decree was based upon his contention that the broad power of the call provision created an unreasonable “restraint on alienation.” However, plaintiff had been an officer and director of the corporation for over 25 years, and had voted for the adoption of the challenged provision. He knew that the purpose of the provision was to keep all stock in the hands of active officers and directors and that it had been an invariable practice for retiring officers and directors to sell their stock either to other shareholders or to the corporation.

While the decision is thus justified by the facts, it may appear to sanction an arbitrary call power much broader than is required to achieve the end which motivated it, i.e., keeping all stock in the hands of active officers and directors.